Aluminum Outlook 2015: Hope in Deficit

Aluminum Outlook 2015: Hope in Deficit

With a supply deficit expected to send prices rising, 2015 looks set to be a good year for the aluminum industry. Already in 2014 premiums have more than doubled in the US, largely due to rising demand from the auto industry.

"The world, excluding China, will continue to be in short supply due to shut downs, production curtailments and strong demand in South America and North America," one aluminum market participant told Reuters in a survey. Other respondents told the news outlet that they expect premiums to hit record highs in 2015′s second quarter.

Australia's Macquarie Group (ASX: MQG) has predicted that the world, excluding China, will record a deficit of 1.75 million tonnes of aluminum in 2015 overall.

Production may rise in 2015

Aluminum production has been falling outside of China since 2012, Reuters states in another article, having declined by 1.61 million tonnes over that period of time. The reason is that the start of 2012 saw very low aluminum prices, which led producers to cut their output considerably.

As of now, production of the metal is still falling in South America — this trend is largely the result of conditions in Brazil, where high power prices and low aluminum prices make production much less cost effective than it is elsewhere.

Production is also still contracting in North America due to situational factors. There are reasons beyond the aluminum price for that — for example, a smelter in Indiana lost a line in a fire in October, and a Canadian smelter has been producing less as it works to implement new technology for the year to come.

Overall, however, Reuters is of the opinion that there is no reason for production to fall further in the year ahead. Instead, a steep rise may occur in 2015 as companies look to restart smelters that have been closed since 2012. One of those is the Dutch Aldel smelter, owned by the Klesch Group. The smelter closed early in the year and applied for bankruptcy, but plans to restart early next year with a yearly capacity of 100,000 tonnes.

Price and Chinese activity

Though aluminum production is expected to rise in 2015, there still won't be enough of it to cover demand. As a result, the metal's price is expected to rise. Shanghai Metals Market predicts a price range of $1,850 to $2,150 per tonne throughout the year.

"Aluminum market in 2015 will repeat the trend of price movements seen in 2014," Shanghai Metals Market aluminum analyst Wang Chunhui said. "In 2015, LME aluminum price will range $1,850-$2,150 per ton, and 12,800-15,000 yuan per ton in SHFE aluminum market. Liquidity conditions at producers should also be closely watched," he added.

The analyst also anticipates weak aluminum consumption in 2015 for the country, though he sees it finding support from exports. "Exports of Chinese aluminum semis are expected to be strong in 2015, as the SHFE/LME aluminum price ratio will favor outbound shipments," he said.

Overall, the picture for aluminum heading into 2015 is a positive one — for prices, premiums and production alike.

 

Related reading:

Aluminum Outlook 2014: Deficit to Come in 2014?

Is Aluminum's Nine-year Surplus Finally Ending?

Aluminum Outlook 2015: Hope in Deficit from Aluminum Investing News

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